As the coronavirus pandemic stretches into its tenth month, the economic impact it’s having on families is only worsening, particularly for those with children. While measures in the CARES Act helped stave off economic deprivation, those income-support provisions have since expired and the money has long been spent. During the pandemic, roughly 14 million children are food insecure, half of whom live in a household in which the adults reported working for pay but not earning enough to put food on the table. The share o f children with an unemployed parent has reached a historic high since the onset of pandemic, and remained high ever since. And since the expiration of CARES Act provisions, the monthly poverty rate in September was higher than rates during April or May. The impact of the pandemic has had sharp racial disparities, as families of color have been pushed into poverty at a faster rate.
In the final days of the 116th Congress, much is up in the air. A bipartisan group of senators unveiled a $908 billion proposal to restart COVID relief talks at the same time that a funding bill is being negotiated to avoid a federal shutdown. The recent bipartisan proposal includes critical funding for state and local governments, unemployment insurance, and small businesses. But advocates are pressing for a proposal in the new Congress and administration that would dramatically help poorer families: expanding the Child Tax Credit (CTC) to make it more closely resemble a child allowance.
In May, the House of Representatives passed the HEROES Act, a pandemic relief bill containing many provisions that would provide badly needed aid. One of those provisions was a one-year expansion of the Child Tax Credit to $3,000, based on the proposal laid out in the 2019 American Family Act, something president-elect Biden has endorsed in his tax plan. An expansion of the Child Tax Credit to make it fully refundable and distribute it regularly would help move the CTC toward a child allowance, a policy that has helped many of the United States’ peer nations reduce child poverty by providing income support for families to assist with the cost of children.
With a Biden presidency on the near horizon and the ongoing dual health and economic crises, advocates say that now is the right time for an expansion of the current Child Tax Credit. Control of the Senate hinges on two races in Georgia, which could be crucial for negotiating the details of and passing a Child Tax Credit expansion in 2021. So, what are the important policy choices and political considerations to be made, and how do advocates see the CTC expansion moving forward now and during the 117th Congress and Biden administration?
The Expansion of CTC into a Child Allowance
The current CTC delivers a tax credit of up to $2,000 per qualifying child in a household that meets the income requirements. However, the credit has an earnings requirement of $2,500; families below that threshold are not eligible for the credit at all. And for low-income families that do meet the income threshold, the credit is not as generous as $2,000 for all. For families where the credit exceeds the amount of taxes the family owes, the credit is only partially refundable, up to $1,400. The tax credit’s current income requirements and current structure disqualifies nearly one-third of U.S. children from receiving the full benefit. The Child Tax Credit is also distributed once a year in a lump sum, making the support less flexible for families who could better benefit from the credit by a regular distribution throughout the year to factor into budgets.
The tax credit’s current income requirements and current structure disqualifies nearly one-third of U.S. children from receiving the full benefit.
There are several proposals to improve the CTC and expand it into a child allowance like many other countries have. A true child allowance, like Canada’s Child Benefit, features a higher benefit amount, full refundability, regular distribution throughout the year, and no minimum income requirement so it’s truly universal. The 2019 American Family Act (AFA) and the 2019 Working Families Tax Relief are just two examples of several recent proposals that seek to reform the current CTC and make it more closely resemble a child allowance since the 2019 National Academy of Sciences’ Roadmap to Reducing Child Poverty Report found that a U.S. child allowance policy could significantly reduce child poverty.
The AFA, included both in the HEROES Act and in Biden’s tax plan as one-year programs, would increase the credit to $3,600 per year for young children and $3,000 for older children, make the credit fully refundable, and distribute it monthly.
A recent report of the Bernard L. Schwartz Rediscovering Government Initiative at The Century Foundation (RGI) and Center on Poverty and Social Policy (CPSP) at Columbia University found that if the United States adopted the American Family Act proposal, it could cut the child poverty rate by 42 percent, and the rate of poverty among Black children by 52 percent. The AFA would move the United States much closer to a child allowance and significantly reduce child poverty. (RGI at The Century Foundation has been supporting the idea of an unconditional child allowance for the past five years.)
What makes expanding the Child Tax Credit unique is the bipartisan support for the idea at the center of the proposal: that increasing benefit levels and making the CTC more akin to an unconditional child allowance is a pragmatic way to support families that are struggling. The idea appeals to both conservative and liberal ideologies, championing both family values and an expansion of the safety net. At its core, it’s an efficient approach to providing families support in a big way.
For Democrats, advocates point out that a CTC expansion does not just have momentum within only one wing of the party. Expanding the CTC to a child allowance is not a progressive or moderate position, but rather, a Democratic position. The AFA on its own has broad consensus among Democrats in Congress, including 37 co-sponsors in the Senate and 186 in the House. Apart from the president-elect, advocates pointed out how many members of the Democratic leadership are major proponents of the expansion, including House Speaker Nancy Pelosi, Minority Leader Chuck Schumer, and the incoming House Appropriations Chair, Representative Rosa DeLauro, who has championed a CTC expansion since 2003.
Republicans, too, have proponents of a Child Tax Credit expansion. Senator Marco Rubio and Senator Mike Lee advocated in favor the Child Tax Credit benefit increases in the Tax Cuts and Job Act of 2017. Senator Mitt Romney worked with Senator Michael Bennet last December to reform and expand the CTC. In July, a group of prominent conservative intellectuals released a letter to Congressional leadership calling for a fully-refundable $2,000 CTC. The move toward supporting a CTC expansion comes from what some Republicans see as the new conservative agenda supporting family-oriented policy and promoting family stability, said Samuel Hammond, director of poverty and welfare policy at the Niskanen Center.
Now, the onus is on growing the coalition further to make an expansion happen in the new Congress and administration. “The momentum has been steadily growing,” said Cara Baldari, vice president of family economics, housing, and homelessness at First Focus on Children. “That’s due to the advocacy and research, like the National Academy of Sciences report that came out last year. And COVID has confirmed the need for cash for families. The earlier stimulus payments showed how helpful it would be to have some sort of mechanism to get cash to families in times of crises.”
At a time in which families are finding it more and more difficult to make ends meet, it seems that there is no better time than now to expand the CTC and deliver support to families regularly.
Outlook and Opportunities
Most advocates agree that the likelihood of any CTC expansion advancing in the lame duck is unlikely. However, many feel cautiously optimistic about at least a temporary expansion of the Child Tax Credit to include several AFA provisions, including full refundability, sometime early on in the Biden administration and 117th Congress.
Tweaks to the CTC to help improve accessibility can come in many forms, but the major goal of making it into a true child allowance involves the full refundability and the regular distribution of the benefit. Other smaller options can be considered as part of the short-term expansion to provide a better benefit to families in the face of the pandemic, but will need to be followed up with bigger action.
“Because of how COVID has impacted household incomes, the makeup of who is receiving refundable credits has changed,” said Hammond. “One of the easiest options is to add a look back provision to allow people to use last year’s earnings instead of this year . . . that’s the low-hanging fruit, but we can do more.”
A CTC expansion to include full refundability, regular delivery, and increased benefit amounts could take several paths. It is possible to pass the improvements through the budget reconciliation, although that entirely depends on an unknown outcome of the Georgia Senate runoff happening in January. It could pass on its own in the next Congress, especially with heightened bipartisan interest in supporting families amid the COVID-19 crisis. Similarly, CTC expansions to provide full refundability, monthly delivery, and higher benefit amounts could be enacted in a pandemic relief bill in 2021 as a new administration and Congress will likely face mounting pressure to provide relief to millions of struggling families.
In any case, an agreement to provide full refundability, deliver the benefit regularly, and offer a higher benefit amount will in all likelihood be a temporary program, as was included in one-year expansions provided in HEROES and the Biden tax plan. However, advocates see the temporary expansion as a way for the developing child-allowance-by-CTC to prove its effectiveness in supporting families and provide a platform to push toward a more permanent version of the expansions.
CTC in the Long Term
Some advocates see proposed CTC expansions, like the full refundability, increased benefit amounts, and monthly delivery, as merely a starting point. Elisa Minoff, senior policy analyst at the Center for the Study of Social Policy, sees a need for greater attention paid to the administrative design elements of the Child Tax Credit.
“We have to ask, will making the existing CTC fully refundable with no earnings test be enough to make it accessible to a large number of families?” Minoff said. “Will families who don’t normally file taxes have to pay tax preparers just to receive a Child Tax Credit? There’s the short term to focus on with establishing a child allowance through the CTC, but we also need to think about how to build momentum over the long term for designing and implementing the allowance to ease administrative burdens and make it as accessible as possible for families.”
Minoff, along with other advocates including Samuel Hammond, wonder whether the IRS is the right place to house the administration of a program like an expanded Child Tax Credit in the long term. Such a CTC would be akin to Social Security for children, so some advocates wonder whether the Social Security Administration would be a more appropriate place for the CTC.
One thing is certain: families and children are struggling to survive the challenges brought on by COVID-19. Even before the pandemic, low-income families were increasingly falling behind. The Biden campaign’s endorsement of at least a temporary CTC expansion is a positive signal of the incoming administration’s priority of children and family wellbeing. The pandemic has proven exactly why adopting a child allowance in the United States could be so beneficial to reducing poverty and suffering, as peer nations like Canada used their child allowance early in the pandemic to deliver immediate relief to families. Research, including by the National Academy of Sciences, has shown that creating a child allowance is one of the most effective ways to combat child poverty. Ata time in which child poverty is likely skyrocketing, there has never been a better time to expand the Child Tax Credit into more of a child allowance.